I am not sure how the company lost sight of what matters to our customers (both business and home) the most, but in my view we lost our way. I think our teams lost sight of what bug-free means, what resilience means, what full scenarios mean, what security means, what performance means, how important current applications are, and really understanding what the most important problems [our] customers face are. I see lots of random features and some great vision, but that doesn’t translate into great products.

“I would buy a Mac today if I was not working at Microsoft.”

–Longtime Windows development chief Jim Allchin, Jan. 7, 2004

Allchin wrote that message four years ago, and when it was made public as part of one of Microsoft’s (MSFT) ongoing lawsuits, he claimed he’d written it to be purposefully dramatic. And perhaps that was the case.

Still, it’s hard not to look at the middling, unenthusiastic reviews given the company’s long-delayed Windows Vista OS and think that maybe he was just being honest. Hard, too, not to look at the company’s unexpected (some feel unprecedented) decision to slash the retail price of Vista to spur sales–and conclude that maybe a lot of consumers feel the same way.

Yesterday, Microsoft announced plans to lower OS’s retail price in advance of if its first major update, Service Pack 1 (SP1). The price cuts vary by market, but in general will range from 20% to 40%. In the states, for example, the price of Vista Ultimate will drop to $219 from $299, Vista Home Premium to $129, from $159–substantial cuts, and ones Microsoft hopes will broaden Vista’s appeal.

“Windows Vista has been on the market for more than a year now, with more than 100 million licenses sold in its first year,” Windows consumer marketing Vice President Brad Brooks explained. “While this is great progress … we’ve observed market behavior that suggests an opportunity to expand Windows stand-alone sales to other segments of the consumer market. Over the past year, we conducted promotions in several different markets combining various marketing tactics with lower price points on different stand-alone versions of Windows Vista. While the promotions varied region to region, one constant emerged–an increase in demand among consumers that went beyond tech enthusiasts and build-it-yourself types.”

Analysts, while taken aback by the price cut, seemed to think it a savvy one. “I think this is a smart strategic move,” said NPD Group Inc.’s Chris Swenson. “Vista hasn’t hit their initial expectations.” That said, Swenson doubts the price cut will have Vista flying off the shelves. Microsoft “really wants to help spark Vista sales, though I don’t see it taking off like a rocket like the way Office did after its price was cut.”

Every time I start the computer it says: Configurating updates: stage 3 of 3 – 0% complete. And then reboots, and reboots, and reboots. … I had it rebooting for over an hour before I stopped the madness.”

–A Vista user encounters Windows Vista Endless Reboot Pack 1

Microsoft has “isolated” another problem with Windows Vista Service Pack 1. Responding to complaints of endlessly rebooting PCs, the software giant has temporarily suspended the automatic distribution of a Windows Vista Service Pack 1 prerequisite.

“Immediately after receiving reports of this error, we made the decision to temporarily suspend automatic distribution of the update to avoid further customer impact while we investigate possible causes,” Nick White, a Vista program manager, wrote in a post to the company’s blog. “So far, we’ve been able to determine that this problem only affects a small number of customers in unique circumstances. We are working to identify possible solutions and will make the update available again shortly after we address the issue.”

End users will have to wait just a little bit longer. Why? Give you one guess. “Driver problems.” From the Windows Vista Blog:

Our beta testing identified an issue with a small set of device drivers. These drivers do not follow our guidelines for driver installation and as a result, some beta participants who were using Windows Vista and updated to Service Pack 1 reported issues with these devices. Because the issue was with the way the drivers were installed and not the drivers themselves, the solution was simply to reinstall the drivers. While this worked fine for our more technical beta testers, we want to deliver a better experience for customers as we make the update broadly available.

“While we know that most customers who update from Windows Vista to SP1 will NOT be affected, our approach is to improve the experience for all our customers. To do this, we will begin making SP1 available through Windows Update in mid-March, giving us time to work with some of our hardware partners to make adjustments to the installation process for the affected drivers. As SP1 gets delivered through Windows Update, we will only offer it to PCs that we detect don’t have any of the affected device drivers installed. We’re taking the next month or so to continue our work of identifying as many of these devices as possible.”

Responding to complaints, the company said today that the upcoming Service Pack 1 update for Windows Vista will remove “Reduced Functionality Mode” from the OS’s copy-protection scheme.

That’s great news for innocent Vista users who’ve had their systems “reduced” for no good reason, although to be frank some users may find the nagware service with which it’s being replaced equally annoying. “Although our overall strategy remains the same, with SP1 we’re adjusting the customer experience that differentiates genuine from nongenuine systems in Windows Vista and later in Windows Server,” Windows product marketing Mike Sievert explained. “Users whose systems are identified as counterfeit will be presented with clear and recurring notices about the status of their system and how to get genuine. They won’t lose access to functionality or features, but it will be very clear to them that their copy of Windows Vista is not genuine and they need to take action.”

Recurring notices, huh? My God … they’ve finally found a new use for Clippy, haven’t they?

“SP1 will contain changes focused on addressing specific reliability and performance issues we’ve identified via customer feedback, supporting new types of hardware, and adding support for several emerging standards,” said Microsoft product manager Nick White. “SP1 also makes additional improvements to the IT administration experience. We didn’t design SP1 as a vehicle for releasing new features.”

Of course not. How could you reasonably devote resources to new feature development when, as David Zipkin, senior product manager in Microsoft’s Windows Client group, eupehmistically explained: “People are having some variety in their experiences with Windows Vista.”

Yeah, the sort of “variety” that inspires some Microsoft Gold partners to rip it off the systems they’ve installed it on 99% of the time …

Anyway, the release of SP1 will likely inspire the corporate customers who’ve put off upgrading to Vista until Microsoft works out its kinks to finally invest in the OS. As IDC analyst Al Gillen told the Seattle Post Intelligencer: “It’s a watershed event for a lot of customers. … Mentally, it’s still an important milestone, I believe. For a lot of customers, they still wait to see a service pack because they feel that is the point in time where a Microsoft product has gotten to a level of testing or reliability where they have the confidence that the product is going to be stable enough for them to use.”